Alibaba’s transformative New Retail: 10 things you need to know

Understand “why” Alibaba’s New Retail will significantly impact current, last mile models. Alibaba’s New Retail will dramatically change retail but it will also affect countless supporting businesses, particularly in the logistic industry. Alibaba is implementing New Retail and defining it as the integration of online, offline, logistics and data across a single value chain to create up-sale opportunities. Alibaba is also restructuring itself from an e-commerce company to a big-data, physical infrastructure and mobile-payment company that incorporates loyal sellers and customers and all intermediaries in between.

This article was first published as a LinkedIn article in November 2017. It was reposted in the following Groups: Harvard Business Review, The Economist Newspaper readers and Postal Innovation.

Consumers engage in webrooming when looking for product information. When customers come into the stores but then buy online, it’s called called “showrooming” and it’s costly for retailers. Tech stores, shoe stores, book stores and the cosmetics industry are all losing sales to showroomers but solutions have proved hard to find. Some stores have resorted to antagonizing consumers further by charging a “browsing” or “fitting” fee.

Research company Foolproof found that 24% of people showroomed while Christmas shopping and 40% of them took their business elsewhere. According to a Comscore study, 45% of consumers came into a retail store to see the product but went online to make the purchase. It’s costly. The bricks-and-mortar stores pay for staffing, real estate, marketing and displays. Online stores don’t.

Online shoppers are used to content-rich, online stores with product videos and reviews, e-payments, social login, detailed specs and information, personalized recommendations or testimonials, wish lists, home delivery or deliver-to-my-post office, same day delivery and more. They have every opportunity to make an informed decision about the product.

Bricks-and-mortar stores still expect shoppers to be “offline” when shopping in their store. However, when online-minded shoppers are in an antiquated store and want information, they take out their smart phone and Google the product. However, with it comes “price comparison”.

Consumers are more knowledgeable and are more demanding than ever before. They expect a seamless omni-channel brand experience. The future of retailing is customer-centric and channel-agnostic.

Bricks-and-mortar stores need to get digital, make shopping an experience, encourage customer involvement, enhance pick-up and delivery options and use social media. That’s exactly what is happening in China.

020 is a way of life in China

O2O has been called the rising force of China. It stands for offline-to-online and online-to-offline retailing. It’s more than a retail strategy. It’s a way of life where mobile technologies blend e-commerce with traditional means of selling goods and services to make buying things more convenient, efficient and even fun.

In China, South-East Asia and the developing world, an exponentially increasing number of people live and breathe on their smartphones for seamless communication, information search, business deals, health information, e-commerce, social-media, mobile money transfer and payments of all types, get loans, invest and so much more.

New Retail is more than O2O

In October of 2016, Alibaba’s Jack Ma coined the term “New Retail”, defining it as the integration of online, offline, logistics and data across a single value chain to create up-sale opportunities. Since December 2016, Alibaba has been restructuring itself from an e-commerce company to a big-data, physical infrastructure and mobile-payment company that incorporates loyal sellers and customers and all intermediaries in between.

Control of the end-to-end process gives Alibaba exclusive control of all data, which enhances predictive analytics and optimization of product choice and product placement. The right products will also be closer to the customers who tend to buy them and a much faster delivery time can be effected.

Alibaba’s has leapfrogged with New Retail at a speed that is probably without precedent. This new innovation will be the focus over the next 10–20 years and it will change the face of retail. In the last 2 years, Alibaba has aggressively moved forward with New Retail via physical stores, joint ventures, partnerships and acquisitions. It has opened 20 New Retail grocery stores under the name of HEMA and 3 Home Times IKEA-like stores.

In the next few years, Asia-Pacific is expected to double its sales and become the largest retail e-commerce market (products and services market sectors).

China will continue to experience a constant double-digit growth, resulting from current digital buyers, coverage of new market segments and an increase in m-commerce sales. North America will remain the distant third largest regional e-commerce market.

In 2016, Alibaba processed 80 million parcels each day. By 2026 Alibaba will be processing 1 billion parcels each day. This will totally transform the logistics industry.

Key components of the New Retail eco-system

New Retail addresses how consumers want to interact and accommodates their need for faster product delivery. It integrates the virtual and physical retail worlds. This has enormous ramifications for the creation of an end-to-end, data-linked eco-systems – from product producer through intermediaries to final consumer.

We have broken New Retail into 10 aspects:

Network: Creating an end-to-end, data-based and linked eco-system is a modern-day “sogo shosha”, the general trading company or “keiretsu” business-alliance model used by Japan to surge them to economic success after WW2.

Data-Integration: Pulling together everyone’s data to improve overall decision-making and efficiency. A wealth of combined data and a computing network gathering even more data gives the ecosystem key advantages.

Social-Media: Using social media to recommend products. China has over 640 million Internet users and over 90% use multiple social media platforms. They, like western consumers, place high importance on brand recommendations. All companies should better use social media. In China, both large shopping real estate companies like Wanda Group and SMEs like taxis and restaurants are buying into 020 with a variety of apps. During Chinese New Year, Starbucks used its app to create customer bonds, encourage people to send online greetings and special deals to friends and family. It increased its New Year monthly sale 10 fold.

Digitization: Using new technology to upgrade or digitize the offline retail world in order to personalize the shopping experience and give customers the omnichannel experience they want.

Omnichannelling: 020 stores offer free Wifi, check-in by QR code on your phone, your profile preferences are instantly recognized, your mobile app. tracks your interests in the store in the same way as they would online, your exact location is pinpointed and information is sent to you, other products are suggested to you based on what you have already bought, product QR codes give you product information and offer you special promotions (e-vouchers, e-coupons, etc.), you can purchase online and collect at the store, you can try clothes on at the store then order it online and have it delivered, engineered showrooming: just scan the product code offline (in the store) and purchase it online, reverse showrooming: browse online and be directed to the closest store that has the product, follow social media product recommendations online and then buy offline, mobile payment can by through the store’s process or Alipay or even through facial recognition.

Predictive analytics: Alibaba uses the pooled database to improve efficiency and to create personalized experiences for each customer that allow for suggestive selling. Alibaba’s Fashion AI application recognizes items in the store’s inventory and suggests outfit matches to customers based on their past preferences and purchases.

Shopping as entertainment: It is true that 11.11 sales events are pure entertainment. You can buy what you see on the TV runway in real time. You can engage in games in real time on your mobile. However, the in-store shopping should also be entertainment.

Mobile money payment: In China, people are quite comfortable using mobile money. Stores facilitate and encourage its use with apps such as WeChat Payment and Alipay. Uber accepts credit card and Alipay. According to Fung Global Reach and Tech, “E-wallets account for a 58% share of the mobile payment market in China—the highest percentage globally—indicating that mobile payments are an integral part of the Chinese shopping experience. In the US, the figure is just 15% and in the UK, it is 23%.”

Stores double as fulfillment centers: Customers can pick-up in-store or have it delivered from the store or local warehouse. Product is closer to the customer and delivery time is decreased.

Fast Delivery: Groceries from Alibaba’s grocery-food chain HEMA can be delivered within 30 minutes in a 3km radius. In major cities in China, online retailers offer same day and next-day delivery. The Cainiao Network consortium, led by Alibaba is committed to building the China Smart Logistics Network (CSN) to realize 24-hour delivery of any product to anywhere in China.

Can existing and new logistics partners step up to the plate?

The New Retail model can and will be replicated by others. Posts and logistics companies will have no choice but to participate.

An end-to-end eco-system requires that all partners adhere to the same mission and culture. They must also incorporate the same quality of service standards. Posts and logistics companies may have to undertake significant change management initiatives.

Data integration within the ecosystem will provide Posts and logistics companies with cost-savings and predictive statistics on parcel business.

Then there are the obvious New Retail requirements: Stores doubling as fulfillment centers will mean parcels will move much shorter distances and there will be emphasis on quick delivery. Tight timelines will be challenging. Same day delivery, common in China, may not be easy elsewhere.

Short-haul service that includes parcel pick-up and delivery will take standardized packaging for space optimization, tracking, a lean organization, route optimization systems, return system, longer daily delivery hours, smaller energy-efficient vehicles, a new labour compensation model enhanced with crowdsourcing or linking with a crowdsourcing agency.